Note 2 New IFRSs 2018

IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS

IFRS 15 Revenue from contracts with customers, replaces as of 2018 existing standards related to revenue recognition such as IAS 18 Revenue, IAS 11 Construction contracts and IFRIC 15 Agreements for the construction of real estate. According to IFRS 15 revenue is recognized when control over a product or service is transferred to a customer, which is a change from the current reporting standards that are based on the transfer of risks and benefits. Even if IFRS 15 entails a new method of determining how and when revenue is recognized it has not led to any material effects for the Peab Group.

Peab has chosen to apply IFRS 15 retroactively by recalculating the financial reports for 2017.

Until the end of 2017 there were differences between operative and legal reporting in business area Project Development. The differences have also been reflected in how executive management and the Board have followed up the Group on the whole. Peab applied IFRIC 15, Agreements for the construction of real estate, in legal reporting. This principle requires applying IAS 18, Revenue, for housing projects in Finland and Norway as well as our own home developments (villas) in Sweden, which meant revenue from projects was first recognized when the home is turned over. Operative and segment reporting was based on the percentage of completion. After implementing IFRS 15, our own home developments in Sweden are reported according to so-called “revenue over time”. IFRS 15 did not lead to any changes in reporting regarding housing projects in Finland and Norway compared to the current application since revenue was first recognized when the home is turned over to the buyer. After implementation of IFRS 15 segment reporting will mirror legal reporting. The differences between operative and legal reporting will therefore no longer exist after implementation of IFRS 15, for neither Project Development nor the Group as a whole.

According to IFRS 15 the sales price of the identified performance obligations in contracts with customers is divided up. Revenue is recognized when a performance obligation is met, which can be at a certain point in time or over time. IFRS 15 does not entail any material change in when the revenue is recognized or for what amount regarding Peab’s construction contract operations in business area Construction and Civil Engineering. Business area Industry recognizes revenue according to both IFRS 15 and IAS 17 Leases, but the shift to IFRS 15 does not entail any material change in the way revenue is recognized. In business area Project Development most revenue is recognized over time. Swedish tenant-owned projects are reported according to IFRS 15 over time, which is the same as previously. Contracts with tenant-owned associations are all signed at the same time, they are priced as one unit and considered one performance obligation. This means that revenue is recognized depending on the project’s level of completion based on expenses in relation to the project’s total calculated costs. Land is sold and buildings are constructed according to the contract with the tenant-owned association, which is an independent legal entity. Fore more information see note 3.

As previously, feared costs are expensed as soon as they are known. According to IFRS 15 the part of a feared loss that has not been worked-up is recognized as a provision. This is a change compared to IAS 11 where the part of a feared loss that has not been worked-up was recognized as Worked-up not invoiced revenue among current assets or Invoiced revenue not worked-up among current liabilities.

No material effects have been identified due to Peab’s recalculation to IFRS 15. As of 1 January 2017 the recalculation effected equity by SEK -40 million. The recalculation to IFRS 15 reduced net sales in 2017 by SEK 109 million to SEK 49,981 million and operating profit improved by SEK 13 million to SEK 2,418 million. Total comprehensive income in 2017 improved by SEK 10 million and therefore equity at the end of 2017 was SEK 10,332 million.

Cash flow was not affected by the recalculation but it caused some deferment within changes in working capital primarily because work-in-progress was reclassified to project and development property.

Reclassification of work-in-progress

In connection with the implementation of IFRS 15 the decision was made to incorporate the previous balance item Work-in-progress into balance item Project and development properties. Per 1 January 2017 the transferred amount was SEK 1,203 million.

Orders received and order backlog

Implementation of IFRS 15 Revenue from contracts with customers entails new disclosures demands. One of the disclosures demands refers to remaining performance obligations, more often called order backlog. In quarterly reports Peab has previously chosen to present information on orders received and order backlog in business areas Construction, Civil Engineering and Project Development. As of 2018 Industry will also present orders received and order backlog for product areas Asphalt, Construction System and part of Rentals.

IFRS 9 Financial instruments

IFRS 9 Financial instruments, replaces IAS 39 Financial instruments: Recognition and measurement, as of 1 January 2018. IFRS 9 differs from IAS 39 foremost regarding classification and valuation of financial assets and financial liabilities, write-downs of financial assets and hedge accounting. IFRS 9 allows a company to continue to apply the rules in IAS 39 for hedge accounting even after 1 January 2018 until IASB has finished its project on so-called “macro hedging”. Peab has chosen to apply all parts of IFRS 9 as of 1 January 2018. In addition, Peab has chosen to apply the exemption in IFRS 9 that permits not recalculating comparable information for previous periods. However, the changed principles for hedge accounting have not affected the Group. The other effects of IFRS 9 for Peab are described below.

Classification and valuation of financial assets and financial liabilities

Peab has holdings of unlisted funds that under IAS 39 have been classified as “Financial assets available-for-sale” which means that the funds have been valued at fair value via other comprehensive income. The funds do not meet the criteria in IFRS 9 for equity instruments and cash flow from the funds does not consist solely of payments in capital and interest. The funds will therefore be valued at fair value via the income statement under IFRS 9. The amount of SEK 4 million in “Fair value reserve” that refers to the funds on 31 December 2017 were transferred to profit brought forward in the opening balance on 1 January 2018.

Peab also has holdings in unlisted shares and participations under IAS 39 valued at acquisition method less any write-downs since fair value could not be reliably determined. However, under IFRS 9 these shares must be valued at fair value. When transitioning to IFRS 9, fair values were re-examined and the recognized values corresponded more or less to fair value. Future changes in values will be recognized in profit/loss for the year.

IFRS 9 has not had any effect on the recognition of Peab’s financial liabilities.

The table below shows how financial assets and financial liabilities were classified under IAS 39 per 2017-12-31 as well as the new classification under IFRS 9 per 2018-01-01. For more information see note 34 Valuation of financial assets and financial liabilities at fair value.

Write-downs of financial assets

IFRS 9 requires loss reserves for anticipated credit losses. This differs from current regulations that only require loss reserves if something occurs that leads Peab to believe a customer may not be able to pay the entire balance due. Historically Peab has only had small credit losses in current operations. Implementation of IFRS 9 will therefore only raise Group reserves for credit losses to a certain extent. The loss reserve per item affected as of 1 January 2018 is shown in the table below. The increase in loss reserves due to the transition to IFRS 9 has been charged to profit brought forward in the opening balance on 1 January 2018 by SEK -7 million net after reductions for deferred tax.

Group, MSEK

Koncernen, Mkr

Loss reserve per 31 December 2017 according to IAS 39

Förlustreserv per 31 december 2017 enligt IAS 39

46

Further write-downs per 1 January 2018 for:

Ytterligare nedskrivning per 1 januari 2018 för:

Accounts receivable and other receivables

Kundfordringar och andra fordringar

5

Interest-bearing long-term receivables

Långfristiga räntebärande fordringar

5

Loss reserve per 1 January 2018 according to IFRS 9

Förlustreserv per 1 januari 2018 enligt IFRS 9

56

Report on group balance sheet in summary, 2017-01-01

Group, MSEK

Reported balance sheet

Reclassification work-in-progress

Adjustment IFRS 15

Adjusted balance sheet

2016-12-31

2017-01-01

2017-01-01

2017-01-01

Koncernen, Mkr

Rapporterad balansräkning

Omklassificering pågående arbeten

Justering IFRS 15

Justerad balansräkning

2016-12-31

2017-01-01

2017-01-01

2017-01-01

Assets

Tillgångar

Intangible assets

Immateriella anläggningstillgångar

2,036

2,036

Tangible assets

Materiella anläggningstillgångar

4,277

4,277

Interest-bearing long-term receivables

Räntebärande långfristiga fordringar

1,762

1,762

Other financial fixed assets

Övriga finansiella tillgångar

1,757

1,757

Deferred tax recoverables

Uppskjuten skattefordran

69

69

Total fixed assets

Summa anläggningstillgångar

9,901

–

–

9,901

Project and development properties

Projekt- och exploateringsfastigheter

7,007

1,203

-292

7,918

Inventories

Varulager

364

364

Work-in-progress

Pågående arbete

1,203

-1,203

–

Interest-bearing current receivables

Räntebärande kortfristiga fordringar

336

336

Other current receivables

Övriga kortfristiga fordringar

11,736

32

11,768

Liquid funds

Likvida medel

1,062

1,062

Total current assets

Summa omsättningstillgångar

21,708

–

-260

21,448

Total assets

Summa tillgångar

31,609

–

-260

31,349

Equity and liabilities

Eget kapital och skulder

Equity

Eget kapital

9,380

–

-40

9,340

Liabilities

Skulder

Interest-bearing long-term liabilities

Räntebärande långfristiga skulder

2,728

2,728

Deferred tax liabilities

Uppskjuten skatteskuld

372

-12

360

Other long-term liabilities

Övriga långfristiga skulder

776

776

Total long-term liabilities

Summa långfristiga skulder

3,876

–

-12

3,864

Interest-bearing current liabilities

Räntebärande kortfristiga skulder

2,294

2,294

Other current liabilities

Övriga kortfristiga skulder

16,059

-208

15,851

Total current liabilities

Summa kortfristiga skulder

18,353

–

-208

18,145

Total liabilities

Summa skulder

22,229

–

-220

22,009

Total equity and liabilities

Summa eget kapital och skulder

31,609

–

-260

31,349

Report on group income statement, Jan-dec 2017

Group, MSEK

Reported income statement

Adjustment IFRS 15

Adjusted income statement

Koncernen, Mkr

Rapporterad resultaträkning

Justering IFRS 15

Justerad resultaträkning

Net sales

Nettoomsättning

50,090

-109

49,981

Production costs

Kostnader för produktion

-45,345

116

-45,229

Gross profit

Bruttoresultat

4,745

7

4,752

Sales and administrative expenses

Försäljnings- och administrationskostnader

-2,620

6

-2,614

Other operating income

Övriga rörelseintäkter

305

305

Other operating costs

Övriga rörelsekostnader

-25

-25

Operating profit

Rörelseresultat

2,405

13

2,418

Financial income

Finansiella intäkter

191

191

Financial expenses

Finansiella kostnader

-151

-151

Net finance

Finansnetto

40

–

40

Pre-tax profit

Resultat före skatt

2,445

13

2,458

Tax

Skatt

-388

-3

-391

Profit for the year

Årets resultat

2,057

10

2,067

Profit for the year attributable to:

Årets resultat hänförligt till:

Shareholders in parent company

Moderbolagets ägare

2,057

10

2,067

Non-controlling interests

Innehav utan bestämmande inflytande

0

0

Profit for the year

Årets resultat

2,057

10

2,067

Report on group balance sheet in summary, 2017-12-31 respectively 2018-01-01

Peab AB is a public company, Company ID 556061-4330. Domicile Båstad, Sweden.

All values are expressed in Swedish krona. Krona is abbreviated to SEK, thousands of krona to TSEK and millions of krona to MSEK. Numbers presented in parentheses refer to 2016 unless otherwise specified.

Data regarding markets and the competition are Peab’s own assessments, unless another source is specified. These assessments are based on the best and latest available facts from, among others, previously published material.

- Peab takes work environment matters very seriously and works systematically to create safe workplaces. The kind of safety equipment used varies depending on national regulations and the type of operations. A risk analysis is always performed for each workplace before any exception is made.

- The people pictured in this publication are wearing personal safety equipment required by regulations valid for the operations and country they are in.